The good thing is that i made a backup of the whole application folder (Motorola Software Update) including the registry changes. I made a copy of the files inside the application folder right after it has backed up the personal data on the phone. So the temporary files were also copied unconsciously.
Restart the Motorola phone on Bootloader mode. This can be done by pressing the *, # and the power buttons together at the same time while the phone is turned off. The phone should display a black screen with white text indicating that the phone is on “Programmable Mode”.
Then run the Motorola Software Update. The software should detect the phone and will automatically commence the firmware upgrade. While update is in progress, copy the personal data temporary file from the temp folder of your backup and paste it to the temp folder under the application folder, usually “C:\Program Files\Motorola\Software Update\temp”. The filename is usually in this format ##############.dat
Wait for the update to finish. The phone will then restart after the update is completed and will then restart the restore process. The software will read from the backup file you placed in the temp folder. This backup file includes the phonebook. Presto!
All though the phone is now fixed, I do not guarantee that whole problem is fully fixed therefore I suggest that you start backing up your phonebook. You may do this by syncing your phone to you PC. Good Luck.